INVESTING IT; Retirement's Worried Face

LIKE so many of his generation, Ronald McPherson switched careers in his 40's, going from social work to computers. But the job switching and then illness shrank his once-generous pensions. And now at age 56, Mr. McPherson finds himself scrambling in part-time work to save enough for retirement. "I never thought this would happen to me," he said.

Or take Fern Marx, who is 59. She quit college to marry and raise children, but at 40 found herself divorced. Like so many women her age in the same fix, Ms. Marx managed to build a late-in-life career, earning $60,000 as a researcher in Wellesley, Mass. In retirement, that will shrink to $20,000. "I have no choice but to work into my 70's," she said.

The great retirement crisis, so widely anticipated for the Baby Boomers who begin to reach retirement age in 2010, is not waiting for the millenium. Already it is quietly engulfing millions of Americans now in their last few years on the job. They had counted on golden years in retirement, and this may not be.

Since World War II, Social Security and company-paid pensions have been the two main pillars of the American retirement system. But the pensions are disappearing, and Social Security, while still intact, is the subject of such gloomy forecasts that the Ronald McPhersons and Fern Marxes of America try not to count on it in planning for retirement. In the transition to a new system -- one that requires people to pay for much of their own retirement from their own savings -- they see themselves caught short, without enough reliable income from pensions or savings or Social Security to maintain their old living standards.

Their stories, and their struggles, are giving younger workers an advance look at a future that is scary because it is still so opaque. Will some of the old system be preserved? If not, what in particular will happen to the huge middle class now earning $30,000 to $100,000 a year? Millions in this wage bracket still count on Social Security and company pensions for the bulk of their retirement income. If they now have to pay their own way, how much must they save? Is it $1 million, $3 million, $6 million?

"No one really knows," said Olena Berg, the Labor Department's assistant secretary for pensions and welfare benefits. "But any amount you save is going to leave you better off than if you don't save that amount. We are getting tens of thousands of inquiries about these issues. Clearly there is anxiety out there."

Clearly. The Baby Boomers are shedding an earlier silver-spoon optimism about their future, surveys show. And behind the Boomers, Mr. McPherson's children and other young people in their 20's are watching their parents' distress with growing apprehension, wondering if they, too, will be forced into harder times in old age.

The spreading nervousness is pushing millions of American workers toward a reluctant self-reliance. "Whether we like it or not, we are heading de facto to a system that has to depend on private savings," said James P. Smith, a labor economist at the Rand Corporation and the author of a just-published study with some unusual findings.

Self-financed retirement may be the wave of the future. But analyzing data from a survey of 7,600 households, Mr. Smith found that even many wealthy families lack enough savings to maintain their lifestyles in retirement, without considerable help from the old standbys, company-paid pensions and Social Security. Saving money is hard. By Mr. Smith's estimate, a four-person household needs $70,000 in annual income to begin saving significantly -- quite a threshold for a nation with a median household income of only $37,000.

"Many Americans, despite this threshold, have started to save, particularly those over 45," said Diane Colasanto, president of Princeton Survey Research. "But very few think this will lead to a comfortable lifestyle in retirement. They feel crunched." What It Takes to Retire

Wall Street fosters the anxiety. Brokerage houses and mutual funds are deeply engaged in the profitable business of investing the billions building up in retirement accounts. And their estimates of how much people must accumulate for retirement are often open ended.

Merrill Lynch, for example, estimates that a husband and wife earning $85,000 apiece when they retire together at age 65 will need at least $1.5 million in savings to come away with $100,000 a year in retirement income. But that estimate assumes that inflation will be mild and that $26,000 of the $100,000 will still come from Social Security.

Maybe. The Social Security fund is expected to run dry by 2029, and in anticipation, various plans are already afoot to scale back. One proposal would skew the payments toward the poor while cutting back what the wealthy receive, including Merrill's couple. Or perhaps in the 21st century, the Federal Government will halt the inflation adjustments in Social Security payments that since the 1960's have lifted the elderly out of poverty.

A similar cutback is well under way for company-paid pensions. These had their origin in World War II, when companies circumvented a wage freeze by offering pensions to their workers. What evolved was a system of guaranteeing the payment of a pension that often exceeded 50 percent of a worker's income, if he or she stayed on the job long enough.

These pensions, called "defined benefit" plans, reached their peak in 1985, when they covered 30 million people, and then went into a continuing decline. New rules raised their cost, and many corporations, engaged in downsizing, no longer wanted to encourage workers to stay for decades. A new system of "defined contribution" plans came into existence instead, and mushroomed.

Under the new system, workers themselves pay for retirement by depositing a percentage of their wages into special savings accounts, often called 401(k) plans, after the section of the law that authorized tax breaks for these accounts. Employers frequently match a part of their workers' contributions, but that is the extent of their obligation. When a worker retires, his pension consists only of the savings in his 401(K) and the return those savings earn. The company is off the hook.

Early this month, the Clinton Administration seemed to encourage the shift away from company-guaranteed pensions and Social Security. At a Labor Department gathering, Labor Secretary Robert B. Reich called on Americans to save more, but he demurred at the suggestion that he had given his blessing to the new retirement system. "We are simply acknowledging," he said later, "that where we are right now, a lot of people have to take action on their own to protect themselves." Covering the Shortfall

That is what Ms. Marx is discovering. After her divorce, she went back to school, took a job, and in 1980 became a researcher for the Center for Research on Women at Wellesley College. But she was too late. Like so many women in their 50's, drawn late into jobs both by the women's movement and necessity, Ms. Marx has not accumulated enough years to build up much in the way of benefits or retirement income from the 401(k)-type savings account that both she and her employer contribute to.

"My guess is that I will get about $10,000 or so a year from my savings and roughly the same from Social Security, but who knows what will happen to Social Security," she said. "Given the finiteness of my resources, I can't think about retiring."

Whatever happens, Ms. Marx probably won't be destitute. If she can't go on working -- and a bad back already limits her hours on the job -- there is a $200,000 home that could be sold, and $200,000 in other savings, apart from her retirement account, that could be drawn down -- savings squeezed from years of spartan living. But each such step would mean a harder old age.

"It is all very confusing to be 60," Ms. Marx said, referring to her next birthday, this month. "I can't see myself as an older person. I see myself, and must see myself, as someone who is still middle aged."

Mr. McPherson still hopes to stop working at 62. By one standard, he and his wife are rich. Although he brings home only $12,000 a year from teaching computer courses at San Bernardino Valley College, his wife, Gail, who is 42, earns $80,000 a year as the manager of a waste water plant for the City of Riverside. Their combined income puts them in the upper 20 percent nationally and they own an idyllic three-bedroom house in the mountains above San Bernardino. "It is beautiful here," Mr. McPherson said.

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But maintaining this lifestyle in retirement will be dicey. The McPhersons are just finishing the process of raising five children -- three hers and two his by first marriages -- and they have only $176,000 in savings today. Again, by national standards, that is high for the McPhersons' age group, Mr. Smith found in his study, but probably not high enough to pay for retirement.

The McPhersons estimate they'll need $5,000 a month, before taxes, "to live comfortably in retirement." The income from savings must bring in at least $1,000 of that total, which means the current savings, now mostly invested in mutual funds, must return a healthy 7 percent a year, and more if inflation kicks in. He had once expected to collect $2,700 a month in pensions, but this has dwindled to $1,700. There will be $800 in Social Security. Now he is counting on his wife's pension, which he hopes will be $1,500 a month. (She has no Social Security from her city Government job.)

Mr. McPherson's retirement plans began to go wrong in 1986, when he resigned after 20 years as a social worker for Orange County and, switching careers, became a computer systems executive for the State of California. "I burned out," he said. "I could no longer take the strain of dysfunctional families."

The job switch, at age 48, meant giving up the $1,700 a month pension that Mr. McPherson would have received at age 62. Instead, he accepted a reduced $1,000 a month, starting at age 50, and it is this pension that the McPhersons now use to help build up their savings.

The computer job also promised a $1,700 a month pension, if Mr. McPherson had lasted until age 62. But sudden, severe illness -- a huge threat in any retirement system based on an individual's own hard work and savings -- struck Mr. McPherson two years ago, at age 54. The illness resembled chronic fatigue syndrome and it forced him into early retirement. That meant a cut in his state pension to only $700 a month.

He is well now, but his stepson, Rex Briggs, is marked by the experience of watching his parents' retirement income dwindle. At 23, Mr. Briggs is doing quite well himself, earning nearly $40,000 a year as a researcher in Norwalk, Conn., for Yankelovich Partners, a public opinion polling firm.

Most of his contemporaries, he finds in his research, are too burdened by expenses to save, although they think constantly about it. They have college loans to repay and credit card debts stemming largely from the costs of a social life aimed not just at pleasure, but also at the important task of finding mates.

Mr. Briggs is a saver, having started last year just weeks after he married his college sweetheart, Carmel. "When I see what is happening to my parents," he said, "the thought crosses my mind, what if I have to help them? And I absolutely would. What would that do to my retirement?"

So he is putting away roughly $500 a month in a 401(k) plan. The couple lives mostly on her salary as an accountant, a salary roughly equal to his. They still have debts from her college days, but they save anyway, by scrimping. They own only one car (she drops him at work), rent a modest apartment (home ownership is far off in their minds) and give up the old pleasures.

" I am torn," Mr. Briggs said, "between enjoying my youth and being scared to death that there won't be enough saved when it comes time for me to get out of the work force." A Hero of Saving

Already, the emerging retirement system is producing its heroes. Manuel Matsos is one. During the Labor Department's gathering to encourage savings, Mr. Reich introduced Mr. Matsos, who is 40, as an example of how to save for retirement on wages of $60,000 to $70,000 a year. Mr. Matsos, who was chosen from a focus group, offered two attributes that average Americans should embrace, Mr. Reich said, "so that when 65 comes, they can retire and relax."

First, take a second job if your wife stays home with the two sons, as Mrs. Matsos does. Mr. Matsos is plant manager for a company that makes cosmetic samples, and in his off hours he is the guitar playing leader of a band that plays at weddings and festivals in Baltimore's Greek-American community, of which Mr. Matsos is a member.

"I had chosen to work two jobs so that my wife could stay home," he said, "but I wasn't channeling the income properly, and I realized that if I did not change, I would have to work in my retirement years. Now 15 percent goes into savings."

That happens because of the second attribute that Mr. Reich seeks to promote. The Matsos family shuns consumerism. Given the family's income, cutting back sharply is the only way to save. Mr. Matsos is convinced of this, although his asceticism does not always sit easily. "Showing me living in a row home and driving used cars is not the image I want to project to the Greek community," he said.

Nevertheless, the Matsos family avoids fast food restaurants; the children spend too much in them. Summer vacations in a rented condo on the Maryland shore are taken with parents and siblings, who share the cost. Impulse buying is out, and coupon shopping is de rigueur. Only lessons for the children are spared.

"My oldest son is studying music and is enrolled in martial arts," Mr. Matsos said, "and if I have to drive my car another year to do this, I will." A Pension in Doubt

Angie Rogers has no hope of living on savings in retirement. At 45, she has worked 26 years at Fieldcrest Cannon Mill in Columbus, Ga., and today she earns $8 an hour operating a machine that folds towels. Like so many low-wage Americans, Ms. Rogers is counting on a Social Security pension that would pay her roughly $12,000 a year, or 72 percent of her current $16,600 base wage.

Nevertheless, for the first time, Ms. Rogers, who is single and childless, is accumulating cash savings. Five years ago, her union negotiated a 401(k) plan to which the employees can contribute up to 10 percent of their wage. The company partly matches up to 4 percent. Ms. Rogers contributes 6 percent of her wage, cutting back on new clothes and dinners out to do this.

While the savings won't pay for retirement, Ms. Rogers said, they are a buffer against poverty, and they come at a time when she is beginning to wonder whether Social Security will really be there for her.

"I sure do worry about it," she said. "Being in the baby boom generation, plenty of us are going to draw Social Security, and if we all start drawing, then before I am very old, the money won't be there."

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A version of this article appears in print on July 30, 1995, on Page 3003001 of the National edition with the headline: INVESTING IT; Retirement's Worried Face. Order Reprints|Today's Paper|Subscribe